Thursday, March 01, 2007

Russian businesses in Ukraine

Interesting article [in Ukrainian and Russian] in the latest 'Kontrakty' business weekly, entitled 'Russians' creep - why it is impossible for Russian Financial Industrial Groups to buy up Ukraine'. It provides details of Ukrainian commerical enterprises controlled by Russian businessmen. The central thesis of the article is that the high competitive ability [konkurentosposobnost'] of Russian business in comparison with its Ukrainian counterparts is a myth.

I've translated just a few bits:

In the consumer and financial sectors of Ukraine the Russians are far from being leaders. This is not surprising, indeed even their home market is congested with western companies. Following Moscow, Petersburg and other large cities of the Federation, Russian consumer business began to move into Kyiv. However, they have not been able to squeeze out domestic retail networks in any way. E.g. the hundreds of millions of dollars that were supposed to be invested in a retail outlet network in Ukraine by 'Pyatyerochka' and 'Perekrestok' to capture a large portion of the Ukrainian market has yet to be seen. The only successful Russian distributor on the Ukrainian market that it is possible to name is perhaps the 'Yevroset' cell phone chain stores owned by Yevgeny Chichvarkin and "Eldorado" group. But the Russian network of household equipment stores clearly loses out to its Ukrainian competitor - 'Foxtrot'.

In the financial sector the Russians have not had too much success either.The market share in the banking sector of Russian establishments is not more than 2%: the Russian banks active in Ukraine, as a rule, only attend clients from a number of Russian business- groups..Russians have found it hard to play an active role in the market for capital's real estate..The high competitive ability of Russian business in comparison with Ukrainian is no more than a myth.

The secret of the success of Russian business in the Ukraine is simple: the business groups of the northern neighbor only dominate in sectors traditional to itself - communications, petroleum refining, and production of aluminum and alumina, where the Russian companies are amongst the world's leaders.However, the Russians do not have sufficient experience, finances, or state support to expand in such branches as metallurgy, chemicals, or engineering, where the leading positions are occupied by Ukrainian FIGs.

This also applies to branches with the high level of competition - retailing, the financial sector and so forth where Russian players lose out not only to western companies which have entered the Ukrainian market, but also to local businesses, who are more familiar with the local realities.

The major lobbying power of Russians in Ukraine is also a myth.. the Ukrainian state, under the pressure fron domestic FIGs, have declined to privatize enterprises coveted by Russians.

The continuation of the expansion of Russian business groups into the Ukraine is highly improbable. Leading domestic FIG's already have their eye on attractive 'gosaktivy', e.g. 'Luganskteplovoz' or 'Ukrtelekom'. Russian FIGs have enough troubles in their own native country: the nationalization of large business taking place in Russia forces FIGs of our northern neighbor to pay greater attention to retention of existing assets and to IPO's, rather than to expansion into Ukraine.

The lot of Russians in our country remains the purchase of smaller companies, or at best the acquisition of assets which are not part of the production chains of Ukrainian magnates. Foreign oligarchs are not needed in Ukraine - we have sufficient of our own."

The article ends with a detailed list of Russian business assets in Ukraine.